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EX-31.1 - CERTIFICATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER - PIPER JAFFRAY COMPANIESpjcq32015ex311.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - PIPER JAFFRAY COMPANIESpjcq32015ex312.htm
EX-32.1 - SECTION 1350 CERTIFICATION - PIPER JAFFRAY COMPANIESpjcq32015ex321.htm
 


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2015
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to                     

Commission File No. 001-31720
PIPER JAFFRAY COMPANIES
(Exact Name of Registrant as specified in its Charter)
DELAWARE
 
30-0168701
(State or Other Jurisdiction of Incorporation or Organization)
 
(IRS Employer Identification No.)
800 Nicollet Mall, Suite 1000
Minneapolis, Minnesota
 
55402
(Address of Principal Executive Offices)
 
(Zip Code)
 
(612) 303-6000
 
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  þ No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ    Accelerated filer ¨    Non-accelerated filer ¨     Smaller reporting company ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨ No  þ

As of October 23, 2015, the registrant had 15,187,330 shares of Common Stock outstanding.

 




Piper Jaffray Companies
Index to Quarterly Report on Form 10-Q

PART I. FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
ITEM 3.
 
ITEM 4.
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
ITEM 1.
 
ITEM 1A.
 
ITEM 2.
 
ITEM 6.
 
 
 





PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS.
Piper Jaffray Companies
Consolidated Statements of Financial Condition
 
September 30,
 
December 31,
 
2015
 
2014
(Amounts in thousands, except share data)
(Unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
44,048

 
$
15,867

Cash and cash equivalents segregated for regulatory purposes
27,014

 
25,011

Receivables:
 
 
 
Customers
49,751

 
9,658

Brokers, dealers and clearing organizations
325,408

 
161,009

Securities purchased under agreements to resell
231,051

 
308,165

 
 
 
 
Financial instruments and other inventory positions owned
482,187

 
507,794

Financial instruments and other inventory positions owned and pledged as collateral
608,171

 
1,108,567

Total financial instruments and other inventory positions owned
1,090,358

 
1,616,361

 
 
 
 
Fixed assets (net of accumulated depreciation and amortization of $50,761 and $47,327, respectively)
18,784

 
18,171

Goodwill
219,423

 
211,878

Intangible assets (net of accumulated amortization of $46,460 and $41,141, respectively)
26,939

 
30,658

Investments
158,885

 
126,840

Other assets
107,401

 
100,299

Total assets
$
2,299,062

 
$
2,623,917

 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
Short-term financing
$
415,747

 
$
377,767

Variable rate senior notes
125,000

 
125,000

Payables:
 
 
 
Customers
49,349

 
13,328

Brokers, dealers and clearing organizations
95,348

 
25,564

Securities sold under agreements to repurchase
43,888

 
102,646

Financial instruments and other inventory positions sold, but not yet purchased
389,375

 
738,124

Accrued compensation
175,220

 
228,877

Other liabilities and accrued expenses
172,540

 
43,151

Total liabilities
1,466,467

 
1,654,457

 
 
 
 
Shareholders’ equity:
 
 
 
Common stock, $0.01 par value:
 
 
 
Shares authorized: 100,000,000 at September 30, 2015 and December 31, 2014;
 
 
 
Shares issued: 19,510,858 at September 30, 2015 and 19,523,371 at December 31, 2014;
 
 
 
Shares outstanding: 13,947,210 at September 30, 2015 and 15,265,420 at December 31, 2014
195

 
195

Additional paid-in capital
751,280

 
735,415

Retained earnings
265,867

 
227,065

Less common stock held in treasury, at cost: 5,563,648 at September 30, 2015 and 4,257,951 shares at December 31, 2014
(222,008
)
 
(143,140
)
Accumulated other comprehensive income
51

 
377

Total common shareholders’ equity
795,385

 
819,912

 
 
 
 
Noncontrolling interests
37,210

 
149,548

Total shareholders’ equity
832,595

 
969,460

 
 
 
 
Total liabilities and shareholders’ equity
$
2,299,062

 
$
2,623,917

See Notes to the Consolidated Financial Statements

3

Piper Jaffray Companies
Consolidated Statements of Operations
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(Amounts in thousands, except per share data)
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Investment banking
$
91,640

 
$
94,911

 
$
284,786

 
$
287,198

Institutional brokerage
34,182

 
35,923

 
106,879

 
114,485

Asset management
18,951

 
21,595

 
58,730

 
64,820

Interest
9,128

 
10,828

 
32,755

 
36,935

Investment income
831

 
2,690

 
10,123

 
12,379

 
 
 
 
 
 
 
 
Total revenues
154,732

 
165,947

 
493,273

 
515,817

 
 
 
 
 
 
 
 
Interest expense
5,115

 
6,521

 
17,719

 
18,227

 
 
 
 
 
 
 
 
Net revenues
149,617

 
159,426

 
475,554

 
497,590

 
 
 
 
 
 
 
 
Non-interest expenses:
 
 
 
 
 
 
 
Compensation and benefits
96,132

 
97,180

 
295,543

 
300,745

Outside services
9,316

 
9,155

 
26,385

 
27,837

Occupancy and equipment
7,025

 
8,312

 
20,791

 
22,151

Communications
6,234

 
5,661

 
17,650

 
17,048

Marketing and business development
6,965

 
6,827

 
21,186

 
19,787

Trade execution and clearance
1,982

 
1,905

 
5,956

 
5,527

Restructuring and integration costs
1,496

 

 
1,496

 

Intangible asset amortization expense
1,773

 
2,318

 
5,319

 
6,954

Other operating expenses
11,906

 
2,376

 
17,289

 
8,719

 
 
 
 
 
 
 
 
Total non-interest expenses
142,829

 
133,734

 
411,615

 
408,768

 
 
 
 
 
 
 
 
Income before income tax expense
6,788

 
25,692

 
63,939

 
88,822

 
 
 
 
 
 
 
 
Income tax expense
1,573

 
8,596

 
20,605

 
28,472

 
 
 
 
 
 
 
 
Net income
5,215

 
17,096

 
43,334

 
60,350

 
 
 
 
 
 
 
 
Net income applicable to noncontrolling interests
384

 
2,428

 
4,532

 
9,721

 
 
 
 
 
 
 
 
Net income applicable to Piper Jaffray Companies
$
4,831

 
$
14,668

 
$
38,802

 
$
50,629

 
 
 
 
 
 
 
 
Net income applicable to Piper Jaffray Companies’ common shareholders
$
4,448

 
$
13,552

 
$
35,908

 
$
46,386

 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.90

 
$
2.46

 
$
3.12

Diluted
$
0.32

 
$
0.90

 
$
2.46

 
$
3.11

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
 
 
 
 
 
 
 
Basic
13,938

 
15,066

 
14,568

 
14,880

Diluted
13,952

 
15,129

 
14,594

 
14,934


See Notes to the Consolidated Financial Statements


4

Piper Jaffray Companies
Consolidated Statements of Comprehensive Income
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(Amounts in thousands)
2015
 
2014
 
2015
 
2014
Net income
$
5,215

 
$
17,096

 
$
43,334

 
$
60,350

 
 
 
 
 
 
 
 
Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(352
)
 
(399
)
 
(326
)
 
(143
)
 
 
 
 
 
 
 
 
Comprehensive income
4,863

 
16,697

 
43,008

 
60,207

 
 
 
 
 
 
 
 
Comprehensive income applicable to noncontrolling interests
384

 
2,428

 
4,532

 
9,721

 
 
 
 
 
 
 
 
Comprehensive income applicable to Piper Jaffray Companies
$
4,479

 
$
14,269

 
$
38,476

 
$
50,486


See Notes to the Consolidated Financial Statements


5

Piper Jaffray Companies
Consolidated Statements of Cash Flows
(Unaudited)

 
Nine Months Ended
 
September 30,
(Dollars in thousands)
2015
 
2014
 
 
 
 
Operating Activities:
 
 
 
Net income
$
43,334

 
$
60,350

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of fixed assets
3,703

 
3,992

Deferred income taxes
(3,967
)
 
(2,487
)
Stock-based and deferred compensation
30,892

 
21,067

Amortization of intangible assets
5,319

 
6,954

Amortization of forgivable loans
4,499

 
3,961

Decrease/(increase) in operating assets:
 
 
 
Cash and cash equivalents segregated for regulatory purposes
(2,003
)
 
4,983

Receivables:
 
 
 
Customers
(40,093
)
 
(14,036
)
Brokers, dealers and clearing organizations
(164,399
)
 
(164,077
)
Securities purchased under agreements to resell
77,114

 
(95,805
)
Net financial instruments and other inventory positions owned
177,254

 
136,592

Investments
(32,045
)
 
(13,124
)
Other assets
(8,733
)
 
2,548

Increase/(decrease) in operating liabilities:
 
 
 
Payables:
 
 
 
Customers
36,021

 
2,835

Brokers, dealers and clearing organizations
69,784

 
56,622

Securities sold under agreements to repurchase
14,186

 

Accrued compensation
(49,824
)
 
25,741

Other liabilities and accrued expenses
129,271

 
(4,559
)
 
 
 
 
Net cash provided by operating activities
290,313

 
31,557

 
 
 
 
Investing Activities:
 
 
 
Business acquisitions, net of cash acquired
(8,737
)
 

Repayment of note receivable
1,500

 
750

Purchases of fixed assets, net
(4,286
)
 
(5,270
)
 
 
 
 
Net cash used in investing activities
(11,523
)
 
(4,520
)
 
 
 
 
Continued on next page

6

Piper Jaffray Companies
Consolidated Statements of Cash Flows – Continued
(Unaudited)

 
Nine Months Ended
 
September 30,
(Dollars in thousands)
2015
 
2014
 
 
 
 
Financing Activities:
 
 
 
Increase/(decrease) in short-term financing
$
37,980

 
$
(175,916
)
Issuance of variable rate senior notes

 
50,000

Repayment of variable rate senior notes

 
(50,000
)
Increase/(decrease) in securities sold under agreements to repurchase
(72,944
)
 
62,576

Decrease in noncontrolling interests
(116,870
)
 
(16,402
)
Repurchase of common stock
(106,239
)
 
(10,563
)
Excess tax benefit from stock-based compensation
5,885

 
1,006

Proceeds from stock option exercises
1,856

 
3,644

 
 
 
 
Net cash used in financing activities
(250,332
)
 
(135,655
)
 
 
 
 
Currency adjustment:
 
 
 
Effect of exchange rate changes on cash
(277
)
 
(118
)
 
 
 
 
Net increase/(decrease) in cash and cash equivalents
28,181

 
(108,736
)
 
 
 
 
Cash and cash equivalents at beginning of period
15,867

 
123,683

 
 
 
 
Cash and cash equivalents at end of period
$
44,048

 
$
14,947

 
 
 
 
Supplemental disclosure of cash flow information –
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
18,324

 
$
17,116

Income taxes
$
24,349

 
$
45,284

 
 
 
 
Non-cash financing activities –
 
 
 
Issuance of common stock for retirement plan obligations:
 
 
 
103,598 shares for the nine months ended September 30, 2014
$

 
$
4,156

 
 
 
 
Issuance of restricted common stock for annual equity award:
 
 
 
550,650 shares and 402,074 shares for the nine months ended September 30, 2015 and 2014, respectively
$
30,429

 
$
16,131


See Notes to the Consolidated Financial Statements


7

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)


Index
Note 1
 
Note 2
 
Note 3
 
Note 4
 
Note 5
 
Note 6
 
Note 7
 
Note 8
 
Note 9
 
Note 10
 
Note 11
 
Note 12
 
Note 13
 
Note 14
 
Note 15
 
Note 16
 
Note 17
 
Note 18
 
Note 19
 


8

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

Note 1 Organization and Basis of Presentation

Organization

Piper Jaffray Companies is the parent company of Piper Jaffray & Co. ("Piper Jaffray"), a securities broker dealer and investment banking firm; Piper Jaffray Ltd., a firm providing securities brokerage and mergers and acquisitions services in Europe headquartered in London, England; Advisory Research, Inc. ("ARI"), which provides asset management services to separately managed accounts, closed-end and open-end funds and partnerships; Piper Jaffray Investment Group Inc., which consists of entities providing alternative asset management services; Piper Jaffray Financial Products Inc., Piper Jaffray Financial Products II Inc. and Piper Jaffray Financial Products III Inc., entities that facilitate derivative transactions; and other immaterial subsidiaries. Piper Jaffray Companies and its subsidiaries (collectively, the "Company") operate in two reporting segments: Capital Markets and Asset Management. A summary of the activities of each of the Company’s business segments is as follows:

Capital Markets

The Capital Markets segment provides institutional sales, trading and research services and investment banking services. Institutional sales, trading and research services focus on the trading of equity and fixed income products with institutions, government and non-profit entities. Revenues are generated through commissions and sales credits earned on equity and fixed income institutional sales activities, net interest revenues on trading securities held in inventory, and profits and losses from trading these securities. Investment banking services include management of and participation in underwritings, merger and acquisition services and public finance activities. Revenues are generated through the receipt of advisory and financing fees. Also, the Company generates revenue through strategic trading and investing activities, which focus on proprietary investments in a variety of securities, including municipal bonds, mortgage-backed securities, and equity securities, and merchant banking activities involving equity or debt investments in late stage private companies. The Company has created alternative asset management funds in merchant banking and municipal securities in order to invest firm capital and to manage capital from outside investors. The Company receives management and performance fees for managing these funds.

Asset Management

The Asset Management segment provides traditional asset management services with product offerings in equity securities and master limited partnerships to institutions and individuals. Revenues are generated in the form of management and performance fees. Revenues are also generated through investments in the partnerships and funds that the Company manages.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the rules and regulations of the Securities and Exchange Commission ("SEC"). Pursuant to this guidance, certain information and disclosures have been omitted that are included within complete annual financial statements. Except as disclosed herein, there have been no material changes in the information reported in the financial statements and related disclosures in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

The consolidated financial statements include the accounts of Piper Jaffray Companies, its wholly owned subsidiaries, and all other entities in which the Company has a controlling financial interest. Noncontrolling interests represent equity interests in consolidated entities that are not attributable, either directly or indirectly, to Piper Jaffray Companies. Noncontrolling interests include the minority equity holders’ proportionate share of the equity in a municipal bond fund, merchant banking fund and private equity investment vehicles. All material intercompany balances have been eliminated.

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates and assumptions are based on the best information available, actual results could differ from those estimates.


9

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

Note 2 Accounting Policies and Pronouncements

Summary of Significant Accounting Policies

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2014 for a full description of the Company's significant accounting policies.

Future Adoption of New Applicable Accounting Standards

Revenue Recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09") which supersedes current revenue recognition guidance, including most industry-specific guidance. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services, and also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue that is recognized. The guidance, as stated in ASU 2014-09, is effective for annual and interim periods beginning after December 15, 2016. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which defers the effective date by one year, with early adoption on the original effective date permitted. The Company is evaluating the impact of the new guidance on its consolidated financial statements.

Consolidation

In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis" ("ASU 2015-02"). ASU 2015-02 makes several modifications to the consolidation guidance for variable interest entities ("VIEs") and general partners' investments in limited partnerships, as well as modifications to the evaluation of whether limited partnerships are VIEs or voting interest entities. It is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the impact of the amended guidance on its consolidated financial statements.


10

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

Note 3 Financial Instruments and Other Inventory Positions Owned and Financial Instruments and Other Inventory Positions Sold, but Not Yet Purchased

Financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased were as follows:
 
September 30,
 
December 31,
(Dollars in thousands)
2015
 
2014
Financial instruments and other inventory positions owned:
 
 
 
Corporate securities:
 
 
 
Equity securities
$
45,192

 
$
50,365

Convertible securities
68,365

 
156,685

Fixed income securities
81,062

 
48,651

Municipal securities:
 
 
 
Taxable securities
84,732

 
312,753

Tax-exempt securities
370,478

 
559,704

Short-term securities
60,934

 
68,717

Mortgage-backed securities
121,991

 
125,065

U.S. government agency securities
221,445

 
244,046

U.S. government securities
60

 
2,549

Derivative contracts
36,099

 
47,826

Total financial instruments and other inventory positions owned
1,090,358

 
1,616,361

 
 
 
 
Less noncontrolling interests (1)

 
(267,742
)
 
$
1,090,358

 
$
1,348,619

 
 
 
 
Financial instruments and other inventory positions sold, but not yet purchased:
 
 
 
Corporate securities:
 
 
 
Equity securities
$
69,915

 
$
154,589

Fixed income securities
29,679

 
21,460

U.S. government agency securities
33,106

 
27,735

U.S. government securities
251,754

 
523,527

Derivative contracts
4,921

 
10,813

Total financial instruments and other inventory positions sold, but not yet purchased
389,375

 
738,124

 
 
 
 
Less noncontrolling interests (2)

 
(98,669
)
 
$
389,375

 
$
639,455

(1)
Noncontrolling interests attributable to third party ownership in a consolidated municipal bond fund consist of $123.3 million of taxable municipal securities, $139.5 million of tax-exempt municipal securities, and $4.9 million of derivative contracts as of December 31, 2014
(2)
Noncontrolling interests attributable to third party ownership in a consolidated municipal bond fund consist of $97.6 million of U.S. government securities, and $1.1 million of derivative contracts as of December 31, 2014.

At September 30, 2015 and December 31, 2014, financial instruments and other inventory positions owned in the amount of $608.2 million and $1.1 billion, respectively, had been pledged as collateral for short-term financings and repurchase agreements.

Financial instruments and other inventory positions sold, but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price, thereby creating a liability to purchase the security in the market at prevailing prices. The Company is obligated to acquire the securities sold short at prevailing market prices, which may exceed the amount reflected on the consolidated statements of financial condition. The Company economically hedges changes in the market value of its financial instruments and other inventory positions owned using inventory positions sold, but not yet purchased, interest rate derivatives, credit default swap index contracts, treasury futures and exchange traded options.


11

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

Derivative Contract Financial Instruments

The Company uses interest rate swaps, interest rate locks, credit default swap index contracts, treasury futures and option contracts to facilitate customer transactions and as a means to manage risk in certain inventory positions. The following describes the Company’s derivatives by the type of transaction or security the instruments are economically hedging.

Customer matched-book derivatives: The Company enters into interest rate derivative contracts in a principal capacity as a dealer to satisfy the financial needs of its customers.  The Company simultaneously enters into an interest rate derivative contract with a third party for the same notional amount to hedge the interest rate and credit risk of the initial client interest rate derivative contract. In certain limited instances, the Company has only hedged interest rate risk with a third party, and retains uncollateralized credit risk as described below. The instruments use interest rates based upon either the London Interbank Offer Rate (“LIBOR”) index or the Securities Industry and Financial Markets Association (“SIFMA”) index.

Trading securities derivatives: The Company enters into interest rate derivative contracts to hedge interest rate and market value risks associated with its fixed income securities. The instruments use interest rates based upon either the Municipal Market Data (“MMD”) index, LIBOR or the SIFMA index. The Company also enters into credit default swap index contracts to hedge credit risk associated with its taxable fixed income securities and option contracts to hedge market value risk associated with its convertible securities.

Derivatives are reported on a net basis by counterparty (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of offset exists and on a net basis by cross product when applicable provisions are stated in master netting agreements. Cash collateral received or paid is netted on a counterparty basis, provided a legal right of offset exists. The total absolute notional contract amount, representing the absolute value of the sum of gross long and short derivative contracts, provides an indication of the volume of the Company's derivative activity and does not represent gains and losses. The following table presents the gross fair market value and the total absolute notional contract amount of the Company's outstanding derivative instruments, prior to counterparty netting, by asset or liability position:
 
 
September 30, 2015
 
December 31, 2014
(Dollars in thousands)
 
Derivative
 
Derivative
 
Notional
 
Derivative
 
Derivative
 
Notional
Derivative Category
 
Assets (1)
 
Liabilities (2)
 
Amount
 
Assets (1)
 
Liabilities (2)
 
Amount
Interest rate
 
 
 
 
 
 
 
 
 
 
 
 
Customer matched-book
 
$
447,226

 
$
425,506

 
$
4,653,035

 
$
447,987

 
$
425,227

 
$
4,860,302

Trading securities
 

 
6,512

 
241,850

 
140

 
8,242

 
297,250

Credit default swap index
 
 
 
 
 
 
 
 
 
 
 
 
Trading securities
 
5,366

 
1,347

 
105,538

 
5,808

 
5,188

 
267,796

Equity option
 
 
 
 
 
 
 
 
 
 
 
 
Trading securities
 
167

 
144

 
8,421

 
76

 
189

 
19,380

 
 
$
452,759

 
$
433,509

 
$
5,008,844

 
$
454,011

 
$
438,846

 
$
5,444,728

(1)
Derivative assets are included within financial instruments and other inventory positions owned on the consolidated statements of financial condition.
(2)
Derivative liabilities are included within financial instruments and other inventory positions sold, but not yet purchased on the consolidated statements of financial condition.

The Company’s derivative contracts do not qualify for hedge accounting, therefore, unrealized gains and losses are recorded on the consolidated statements of operations. The gains and losses on the related economically hedged inventory positions are not disclosed below as they are not in qualifying hedging relationships. The following table presents the Company’s unrealized gains/(losses) on derivative instruments:
 
 
 
 
Three Months Ended
 
Nine Months Ended
(Dollars in thousands)
 
 
 
September 30,
 
September 30,
Derivative Category               
 
Operations Category
 
2015
 
2014
 
2015
 
2014
Interest rate derivative contract
 
Investment banking
 
$
(689
)
 
$
(809
)
 
$
(1,688
)
 
$
(2,178
)
Interest rate derivative contract
 
Institutional brokerage
 
(10,450
)
 
1,368

 
2,106

 
(2,898
)
Credit default swap index contract
 
Institutional brokerage
 
4,268

 
2,078

 
16,913

 
(845
)
Equity option derivative contract
 
Institutional brokerage
 
86

 
693

 
139

 
1,112

 
 
 
 
$
(6,785
)
 
$
3,330

 
$
17,470

 
$
(4,809
)


12

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. Credit exposure associated with the Company’s derivatives is driven by uncollateralized market movements in the fair value of the contracts with counterparties and is monitored regularly by the Company’s financial risk committee. The Company considers counterparty credit risk in determining derivative contract fair value. The majority of the Company’s derivative contracts are substantially collateralized by its counterparties, who are major financial institutions. The Company has a limited number of counterparties who are not required to post collateral. Based on market movements, the uncollateralized amounts representing the fair value of the derivative contract can become material, exposing the Company to the credit risk of these counterparties. As of September 30, 2015, the Company had $25.9 million of uncollateralized credit exposure with these counterparties (notional contract amount of $187.9 million), including $17.5 million of uncollateralized credit exposure with one counterparty.

Note 4 Fair Value of Financial Instruments

Based on the nature of the Company’s business and its role as a “dealer” in the securities industry or as a manager of alternative asset management funds, the fair values of its financial instruments are determined internally. The Company’s processes are designed to ensure that the fair values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, unobservable inputs are developed based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations and other security-specific information. Valuation adjustments related to illiquidity or counterparty credit risk are also considered. In estimating fair value, the Company may utilize information provided by third party pricing vendors to corroborate internally-developed fair value estimates.

The Company employs specific control processes to determine the reasonableness of the fair value of its financial instruments. The Company’s processes are designed to ensure that the internally-estimated fair values are accurately recorded and that the data inputs and the valuation techniques used are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. Individuals outside of the trading departments perform independent pricing verification reviews as of each reporting date. The Company has established parameters which set forth when the fair value of securities are independently verified. The selection parameters are generally based upon the type of security, the level of estimation risk of a security, the materiality of the security to the Company’s financial statements, changes in fair value from period to period, and other specific facts and circumstances of the Company’s securities portfolio. In evaluating the initial internally-estimated fair values made by the Company’s traders, the nature and complexity of securities involved (e.g., term, coupon, collateral, and other key drivers of value), level of market activity for securities, and availability of market data are considered. The independent price verification procedures include, but are not limited to, analysis of trade data (both internal and external where available), corroboration to the valuation of positions with similar characteristics, risks and components, or comparison to an alternative pricing source, such as a discounted cash flow model. The Company’s valuation committee, comprised of members of senior management and risk management, provides oversight and overall responsibility for the internal control processes and procedures related to fair value measurements.

The following is a description of the valuation techniques used to measure fair value.

Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Actively traded money market funds are measured at their net asset value and classified as Level I.

Financial Instruments and Other Inventory Positions Owned

The Company records financial instruments and other inventory positions owned and financial instruments and other inventory positions sold, but not yet purchased at fair value on the consolidated statements of financial condition with unrealized gains and losses reflected on the consolidated statements of operations.


13

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

Equity securities – Exchange traded equity securities are valued based on quoted prices from the exchange for identical assets or liabilities as of the period-end date. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level I. Non-exchange traded equity securities (principally hybrid preferred securities) are measured primarily using broker quotations, prices observed for recently executed market transactions and internally-developed fair value estimates based on observable inputs and are categorized within Level II of the fair value hierarchy.

Convertible securities – Convertible securities are valued based on observable trades, when available. Accordingly, these convertible securities are categorized as Level II.

Corporate fixed income securities – Fixed income securities include corporate bonds which are valued based on recently executed market transactions of comparable size, internally-developed fair value estimates based on observable inputs, or broker quotations. Accordingly, these corporate bonds are categorized as Level II.

Taxable municipal securities – Taxable municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II. Certain illiquid taxable municipal securities are valued using market data for comparable securities (maturity and sector) and management judgment to infer an appropriate current yield or other model-based valuation techniques deemed appropriate by management based on the specific nature of the individual security and are therefore categorized as Level III.

Tax-exempt municipal securities – Tax-exempt municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II. Certain illiquid tax-exempt municipal securities are valued using market data for comparable securities (maturity and sector) and management judgment to infer an appropriate current yield or other model-based valuation techniques deemed appropriate by management based on the specific nature of the individual security and are therefore categorized as Level III.

Short-term municipal securities – Short-term municipal securities include auction rate securities, variable rate demand notes, and other short-term municipal securities. Variable rate demand notes and other short-term municipal securities are valued using recently executed observable trades or market price quotations and therefore are generally categorized as Level II. Auction rate securities with limited liquidity are categorized as Level III and are valued using discounted cash flow models with unobservable inputs such as the Company’s expected recovery rate on the securities.

Mortgage-backed securities – Mortgage-backed securities are valued using observable trades, when available. Certain mortgage-backed securities are valued using models where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data. These mortgage-backed securities are categorized as Level II. Other mortgage-backed securities, which are principally collateralized by residential mortgages, have experienced low volumes of executed transactions resulting in less observable transaction data. Certain mortgage-backed securities collateralized by residential mortgages are valued using cash flow models that utilize unobservable inputs including credit default rates, prepayment rates, loss severity and valuation yields. As judgment is used to determine the range of these inputs, these mortgage-backed securities are categorized as Level III.

U.S. government agency securities – U.S. government agency securities include agency debt bonds and mortgage bonds. Agency debt bonds are valued by using either direct price quotes or price quotes for comparable bond securities and are categorized as Level II. Mortgage bonds include bonds secured by mortgages, mortgage pass-through securities, agency collateralized mortgage-obligation (“CMO”) securities and agency interest-only securities. Mortgage pass-through securities, CMO securities and interest-only securities are valued using recently executed observable trades or other observable inputs, such as prepayment speeds and therefore are generally categorized as Level II. Mortgage bonds are valued using observable market inputs, such as market yields ranging from 120-380 basis points (“bps”) on spreads over U.S. treasury securities, or models based upon prepayment expectations ranging from 4%-20% conditional prepayment rate (“CPR”). These securities are categorized as Level II.

U.S. government securities – U.S. government securities include highly liquid U.S. treasury securities which are generally valued using quoted market prices and therefore categorized as Level I. The Company does not transact in securities of countries other than the U.S. government.


14

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

Derivatives – Derivative contracts include interest rate swaps, interest rate locks, credit default swap index contracts, treasury futures and option contracts. These instruments derive their value from underlying assets, reference rates, indices or a combination of these factors. The Company's equity option derivative contracts are valued based on quoted prices from the exchange for identical assets or liabilities as of the period-end date. To the extent these contracts are actively traded and valuation adjustments are not applied, they are categorized as Level I. The Company’s credit default swap index contracts are valued using market price quotations and are classified as Level II. The majority of the Company’s interest rate derivative contracts, including both interest rate swaps and interest rate locks, are valued using market standard pricing models based on the net present value of estimated future cash flows. The valuation models used do not involve material subjectivity as the methodologies do not entail significant judgment and the pricing inputs are market observable, including contractual terms, yield curves and measures of volatility. These instruments are classified as Level II within the fair value hierarchy. Certain interest rate locks transact in less active markets and were valued using valuation models that included the previously mentioned observable inputs and certain unobservable inputs that required significant judgment, such as the premium over the MMD curve. These instruments are classified as Level III.

Investments

The Company’s investments valued at fair value include equity investments in private companies and partnerships, investments in public companies, investments in registered mutual funds, warrants of public and private companies and private company debt. Exchange traded direct equity investments in public companies and registered mutual funds are valued based on quoted prices on active markets and classified as Level I. Company-owned warrants, which have a cashless exercise option, are valued based upon the Black-Scholes option-pricing model and certain unobservable inputs. The Company applies a liquidity discount to the value of its warrants in public and private companies. For warrants in private companies, valuation adjustments, based upon management’s judgment, are made to account for differences between the measured security and the stock volatility factors of comparable companies. Company-owned warrants are reported as Level III assets. Investments in private companies are valued based on an assessment of each underlying security, considering rounds of financing, third party transactions and market-based information, including comparable company transactions, trading multiples (e.g., multiples of revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA")) and changes in market outlook, among other factors. These securities are generally categorized as Level III.

Fair Value Option – The fair value option permits the irrevocable fair value option election on an instrument-by-instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The fair value option was elected for certain merchant banking and other investments at inception to reflect economic events in earnings on a timely basis. Merchant banking and other equity investments of $19.1 million and $18.4 million, included within investments on the consolidated statements of financial condition, are accounted for at fair value and are classified as Level III assets at September 30, 2015 and December 31, 2014, respectively. The realized and unrealized gains from fair value changes included in earnings as a result of electing to apply the fair value option to certain financial assets were $0.7 million and $2.1 million for the nine months ended September 30, 2015 and 2014, respectively.


15

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

The following table summarizes quantitative information about the significant unobservable inputs used in the fair value measurement of the Company’s Level III financial instruments as of September 30, 2015:
 
Valuation
 
 
 
 
 
Weighted
 
Technique
 
Unobservable Input
 
Range      
 
Average
Assets:
 
 
 
 
 
 
 
Financial instruments and other inventory positions owned:
 
 
 
 
 
 
 
Municipal securities:
 
 
 
 
 
 
 
Tax-exempt securities
Discounted cash flow
 
Debt service coverage ratio (2)
 
5 - 60%
 
19.4%
Short-term securities
Discounted cash flow
 
Expected recovery rate (% of par) (2)
 
66 - 94%
 
91.0%
Mortgage-backed securities:
 
 
 
 
 
 
 
Collateralized by residential mortgages
Discounted cash flow
 
Credit default rates (3)
 
1 - 8%
 
3.8%
 
 
 
Prepayment rates (4)
 
3 - 20%
 
5.4%
 
 
 
Loss severity (3)
 
25 - 100%
 
61.7%
 
 
 
Valuation yields (3)
 
5 - 9%
 
5.8%
Investments at fair value:
 
 
 
 
 
 
 
Warrants in public and private companies
Black-Scholes option pricing model
 
Liquidity discount rates (1)
 
30 - 40%
 
39.2%
Warrants in private companies
Black-Scholes option pricing model
 
Stock volatility factors of comparable companies (2)
 
30 - 58%
 
40.4%
Equity securities in private companies
Market approach
 
Revenue multiple (2)
 
2 - 7 times
 
5.0 times
 
 
 
EBITDA multiple (2)
 
10 - 12 times
 
10.4 times
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Financial instruments and other inventory positions sold, but not yet purchased:
 
 
 
 
 
 
 
Derivative contracts:
 
 
 
 
 
 
 
Interest rate locks
Discounted cash flow
 
Premium over the MMD curve (1)
 
1 - 25 bps
 
9.5 bps
Sensitivity of the fair value to changes in unobservable inputs:
(1)
Significant increase/(decrease) in the unobservable input in isolation would result in a significantly lower/(higher) fair value measurement.
(2)
Significant increase/(decrease) in the unobservable input in isolation would result in a significantly higher/(lower) fair value measurement.
(3)
Significant changes in any of these inputs in isolation could result in a significantly different fair value. Generally, a change in the assumption used for credit default rates is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally inverse change in the assumption for valuation yields.
(4)
The potential impact of changes in prepayment rates on fair value is dependent on other security-specific factors, such as the par value and structure. Changes in the prepayment rates may result in directionally similar or directionally inverse changes in fair value depending on whether the security trades at a premium or discount to the par value.

16

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

The following table summarizes the valuation of the Company’s financial instruments by pricing observability levels defined in FASB Accounting Standards Codification Topic 820, "Fair Value Measurement" ("ASC 820") as of September 30, 2015:
 
 
 
 
 
 
 
Counterparty
 
 
 
 
 
 
 
 
 
and Cash
 
 
 
 
 
 
 
 
 
Collateral
 
 
(Dollars in thousands)
Level I
 
Level II
 
Level III
 
Netting (1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions owned:
 
 
 
 
 
 
 
 
 
Corporate securities:
 
 
 
 
 
 
 
 
 
Equity securities
$
32,558

 
$
12,634

 
$

 
$

 
$
45,192

Convertible securities

 
68,365

 

 

 
68,365

Fixed income securities

 
81,062

 

 

 
81,062

Municipal securities:
 
 
 
 
 
 
 
 
 
Taxable securities

 
73,226

 
11,506

 

 
84,732

Tax-exempt securities

 
363,614

 
6,864

 

 
370,478

Short-term securities

 
60,214

 
720

 

 
60,934

Mortgage-backed securities

 

 
121,991

 

 
121,991

U.S. government agency securities

 
221,445

 

 

 
221,445

U.S. government securities
60

 

 

 

 
60

Derivative contracts
167

 
452,592

 

 
(416,660
)
 
36,099

Total financial instruments and other inventory positions owned:
32,785

 
1,333,152

 
141,081

 
(416,660
)
 
1,090,358

 
 
 
 
 
 
 
 
 
 
Cash equivalents
1,426

 

 

 

 
1,426

 
 
 
 
 
 
 
 
 
 
Investments at fair value
37,403

 

 
96,369

 

 
133,772

Total assets
$
71,614

 
$
1,333,152

 
$
237,450

 
$
(416,660
)
 
$
1,225,556

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions sold, but not yet purchased:
 
 
 
 
 
 
 
 
 
Corporate securities:
 
 
 
 
 
 
 
 
 
Equity securities
$
69,308

 
$
607

 
$

 
$

 
$
69,915

Fixed income securities

 
29,679

 

 

 
29,679

U.S. government agency securities

 
33,106

 

 

 
33,106

U.S. government securities
251,754

 

 

 

 
251,754

Derivative contracts
144

 
427,788

 
5,577

 
(428,588
)
 
4,921

Total financial instruments and other inventory positions sold, but not yet purchased:
$
321,206

 
$
491,180

 
$
5,577

 
$
(428,588
)
 
$
389,375

(1)
Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.


17

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

The following table summarizes the valuation of the Company’s financial instruments by pricing observability levels defined in ASC 820 as of December 31, 2014:
 
 
 
 
 
 
 
Counterparty
 
 
 
 
 
 
 
 
 
and Cash
 
 
 
 
 
 
 
 
 
Collateral
 
 
(Dollars in thousands)
Level I
 
Level II
 
Level III
 
Netting (1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions owned:
 
 
 
 
 
 
 
 
 
Corporate securities:
 
 
 
 
 
 
 
 
 
Equity securities
$
39,191

 
$
11,174

 
$

 
$

 
$
50,365

Convertible securities

 
156,685

 

 

 
156,685

Fixed income securities

 
48,651

 

 

 
48,651

Municipal securities:
 
 
 
 
 
 
 
 
 
Taxable securities

 
312,753

 

 

 
312,753

Tax-exempt securities

 
558,518

 
1,186

 

 
559,704

Short-term securities

 
67,997

 
720

 

 
68,717

Mortgage-backed securities

 
316

 
124,749

 

 
125,065

U.S. government agency securities

 
244,046

 

 

 
244,046

U.S. government securities
2,549

 

 

 

 
2,549

Derivative contracts
76

 
453,795

 
140

 
(406,185
)
 
47,826

Total financial instruments and other inventory positions owned:
41,816

 
1,853,935

 
126,795

 
(406,185
)
 
1,616,361

 
 
 
 
 
 
 
 
 
 
Cash equivalents
1,562

 

 

 

 
1,562

 
 
 
 
 
 
 
 
 
 
Investments at fair value
20,704

 

 
74,165

 

 
94,869

Total assets
$
64,082

 
$
1,853,935

 
$
200,960

 
$
(406,185
)
 
$
1,712,792

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions sold, but not yet purchased:
 
 
 
 
 
 
 
 
 
Corporate securities:
 
 
 
 
 
 
 
 
 
Equity securities
$
153,254

 
$
1,335

 
$

 
$

 
$
154,589

Fixed income securities

 
21,460

 

 

 
21,460

U.S. government agency securities

 
27,735

 

 

 
27,735

U.S. government securities
523,527

 

 

 

 
523,527

Derivative contracts
189

 
430,835

 
7,822

 
(428,033
)
 
10,813

Total financial instruments and other inventory positions sold, but not yet purchased:
$
676,970

 
$
481,365

 
$
7,822

 
$
(428,033
)
 
$
738,124

(1)
Represents cash collateral and the impact of netting on a counterparty basis. The Company had no securities posted as collateral to its counterparties.

The Company’s Level III assets were $237.5 million and $201.0 million, or 19.4 percent and 11.7 percent of financial instruments measured at fair value at September 30, 2015 and December 31, 2014, respectively. The value of transfers between levels are recognized at the beginning of the reporting period. There were $4.2 million of transfers of financial assets from Level II to Level III during the three and nine months ended September 30, 2015, respectively, related to taxable municipal securities for which no recent trade activity was observed and valuation inputs became unobservable. There were no other significant transfers between Level I, Level II or Level III for the three and nine months ended September 30, 2015, respectively.
 

18

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)


The following tables summarize the changes in fair value associated with Level III financial instruments held at the beginning or end of the periods presented:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains/
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(losses) for assets/
 
Balance at
 
 
 
 
 
 
 
 
 
Realized
 
Unrealized
 
Balance at
 
liabilities held at
 
June 30,
 
 
 
 
 
Transfers
 
Transfers
 
gains/
 
gains/
 
September 30,
 
September 30,
(Dollars in thousands)
2015
 
Purchases
 
Sales
 
in
 
out
 
(losses) (1)
 
(losses) (1)
 
2015
 
2015 (1)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions owned:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable securities
$

 
$
7,624

 
$
(683
)
 
$
4,158

 
$

 
$
66

 
$
341

 
$
11,506

 
$
341

Tax-exempt securities
1,186

 
5,686

 

 

 

 

 
(8
)
 
6,864

 
(8
)
Short-term securities
720

 

 

 

 

 

 

 
720

 

Mortgage-backed securities
129,399

 
24,836

 
(32,748
)
 

 

 
(7
)
 
511

 
121,991

 
451

Derivative contracts
5,309

 
882

 
(2,630
)
 

 

 
1,748

 
(5,309
)
 

 

Total financial instruments and other inventory positions owned:
136,614

 
39,028

 
(36,061
)
 
4,158

 

 
1,807

 
(4,465
)
 
141,081

 
784

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments at fair value
94,196

 

 
(7
)
 

 

 
(98
)
 
2,278

 
96,369

 
2,174

Total assets
$
230,810

 
$
39,028

 
$
(36,068
)
 
$
4,158

 
$

 
$
1,709

 
$
(2,187
)
 
$
237,450

 
$
2,958

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions sold, but not yet purchased:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative contracts
$
435

 
$
(2,287
)
 
$

 
$

 
$

 
$
2,287

 
$
5,142

 
$
5,577

 
$
5,456

Total financial instruments and other inventory positions sold, but not yet purchased:
$
435

 
$
(2,287
)
 
$

 
$

 
$

 
$
2,287

 
$
5,142

 
$
5,577

 
$
5,456

(1)
Realized and unrealized gains/(losses) related to financial instruments, with the exception of customer matched-book derivatives, are reported in institutional brokerage on the consolidated statements of operations. Realized and unrealized gains/(losses) related to customer matched-book derivatives are reported in investment banking. Realized and unrealized gains/(losses) related to investments are reported in investment banking revenues or investment income/(loss) on the consolidated statements of operations.


19

Piper Jaffray Companies
Notes to the Consolidated Financial Statements
(Unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains/
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(losses) for assets/
 
Balance at
 
 
 
 
 
 
 
 
 
Realized
 
Unrealized
 
Balance at
 
liabilities held at
 
June 30,
 
 
 
 
 
Transfers
 
Transfers
 
gains/
 
gains/
 
September 30,
 
September 30,
(Dollars in thousands)
2014
 
Purchases
 
Sales
 
in
 
out
 
(losses) (1)
 
(losses) (1)
 
2014
 
2014 (1)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial instruments and other inventory positions owned:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax-exempt securities
$
1,306

 
$

 
$

 
$

 
$

 
$

 
$

 
$
1,306

 
$

Short-term securities
732

 

 

 

 

 

 
(1
)
 
731

 
(1
)
Mortgage-backed securities
129,126

 
58,028

 
(93,801
)
 
515

 

 
1,377

 
29

 
95,274

 
363

Derivative contracts
627

 

 

 

 

 

 
690

 
1,317

 
786

Total financial instruments and other inventory positions owned:
131,791

 
58,028

 
(93,801
)
 
515

 

 
1,377

 
718

 
98,628

 
1,148

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments at fair value
58,567

 
10,500

 
(9
)
 

 

 
9

 
931

 
69,998

 
931

Total assets
$
190,358

 
$
68,528

 
$
(93,810
)
 
$
515

 
$

 
$
1,386

 
$
1,649